Monday, September 22, 2008

About this bazillion dollar bailout

Hi, everyone! When it rains it pours, right? A hair- raising presidential election, an overwhelmingly destructive hurricane season and now what many are calling the worst economic crisis our country has faced since the Great Depression. Enough already! It's been hard to keep my head straight.

For some reason though, this bazillion dollar bail-out of Wall Street is the one that's giving me the funniest feeling, a sort of free-floating anxiety that just won't go away.

About a year and a half ago I read something on the Information Clearinghouse website that predicted this sort of thing... It was an old article even then and the author was talking about how then Federal Reserve Board chairman Alan Greenspan was setting the country up for a major ripoff of the middleclass by keeping Fed rates artificially low. The writer predicted the current housing crisis and alleged that it would result in the very rich consolidating and increasing their wealth and power well the rest of us were going to be pretty much diminished in our share of the American dream pie.

Well, my parents lived through the Great Depression and as a result my brother and sister and I were born into a pro-Union, Democratic Party loving and FDR honoring family and that was that. The phrases "the little man," "working people," and "the working class," were a part of their political vocabulary and they were always used with pride. Or maybe it was empathy. But you know, ever since the Reagan Administration, "the little man" has been losing his standing. People don't want to think of themselves as members of the working class. Even the most marginal workers like to identify with the wealthy. Maybe that's what the media-induced celebrity madness is about. And you know that's got to be behind the housing boom: the idea that we can all live like kings and queens even if we have to work two or three jobs to afford it. Newsweek's Daniel McGinn wrote a book about it called House Lust.

Following is an excerpt from the online magazine, Counterpunch

America's Own Kleptocracy, September 20, 2008


Nobody expected industrial capitalism to end up like this. Nobody even saw it evolving in this direction. I’m afraid this failing is not unusual among futurists: The natural tendency is to think about how economies can best grow and evolve, not how it can be untracked. But an unforeseen road always seems to appear, and there goes society goes off on a tangent.

What a two weeks! On Sunday, September 7, the Treasury took on the $5.3 trillion mortgage exposure of Fannie Mae and Freddie Mac, whose heads already had been removed for accounting fraud. On Monday, September 15, Lehman Brothers went bankrupt, when prospective Wall Street buyers couldn’t gain any sense of reality from its financial books. On Wednesday the Federal Reserve agreed to make good for at least $85 billion in the just-pretend “insured” winnings owed to financial gamblers who bet on computer-driven trades in junk mortgages and bought counter-party coverage from the A.I.G. (the American International Group, whose head Maurice Greenberg already had been removed a few years back for accounting fraud). But it is Friday, September 19, that will go down as a turning point in American history. The White House committed at least half a trillion dollars more to re-inflate real estate prices in an attempt to support the market value junk mortgages – mortgages issued far beyond the ability of debtors to pay and far above the going market price of the collateral being pledged.

These billions of dollars were devoted to keeping a dream alive – the accounting fictions written down by companies that had entered an unreal world based on false accounting that nearly everyone in the financial sector knew to be fake. But they played along with buying and selling packaged mortgage junk because that was where the money was. Even after markets collapse, fund managers who steered clear were blamed for not playing the game while it was going. I have friends on Wall Street who were fired for not matching the returns that their compatriots were making. And the biggest returns were to be made in trading in the economy’s largest financial asset – mortgage debt. The mortgages packaged, owned or guaranteed by Fannie and Freddie alone exceeded the entire U.S. national debt – the cumulative deficits run up by the American Government since the nation won the Revolutionary War!

This gives an idea of just how large the bailout has been – and where the government’s (or at least the Republicans’) priorities lie! Instead of waking up the economy to reality, the government has thrown all its resources to promote the unreal dream that debts can be paid – if not by the debtors themselves, then by the government – “taxpayers,” as the euphemism goes.

Overnight, the U.S. Treasury and Federal Reserve have radically changed the character of American capitalism. It is nothing less than a coup d’ĂȘtat for the class that FDR called “banksters.” What has happened in the past two weeks threatens to change the coming century – irreversibly, if they can get away with it. This is the largest and most inequitable transfer of wealth since the land giveaways to the railroad barons during the Civil War era.

How's that for starters... Michael Hudson was the economic advisor to the campaign of Dennis Kucinich. Checking him out online, I found this interview on KPFA's Guns and Butter for August 15, 2007. I must say listening to this interview was rather alarming but highly informative. Go here to listen to it.